Modest improvement amidst a cloud of frustration

“2014 is the great unknown.”

There is considerable caution and uncertainty about the business outlook in the months ahead, based on the results of the annual McDonald Hopkins Business Outlook Survey. As one of the more than 400 respondents said, “2014 will be challenging in most sectors.” Although 63 percent of the business owners and executives anticipate modest improvements in U.S. business conditions compared to 51 percent last year, they have numerous concerns about important business issues, including rising health care costs and burdensome regulations.

Affordable Care Act reinforces uncertainty

Sixty-seven percent of the respondents believe the Affordable Care Act (ACA) will have a negative impact on their company’s bottom line this year and only 9 percent expect the ACA to have a positive impact. As one respondent wrote, “The ACA will continue to create uncertainty, which will limit expansion and hiring.”

Health care providers voiced strong concerns as well, especially about issues related to reimbursement, collections and increasing costs. For example: “There will be significant upheaval in the health care market the next several years,” and “The Affordable Care Act will severely restrict reimbursement and cut our revenue.”

What are the greatest challenges facing your company?

Increasing health care costs are at the top of the list. In addition, retaining profit margins and regulations continue to be among the greatest challenges. There are numerous comments related to “too much government.” One remark that typifies others: “The government is the problem, not the solution. Get them out of the way and watch our economy and our business grow unbridled.”

2014

2013

2012

2011

Increasing health care costs

46%

47%

43%

39%

Retaining profit margins

45%

41%

40%

42%

Federal, state and local regulations

42%

35%

39%

36%

Stiff competition

36%

35%

35%

41%

High tax rates

22%

27%

17%

17%

Federal budget deficit

16%

32%

24%

19%

Employee issues

16%

15%

15%

20%

Declining demand for our products/services

13%

15%

16%

13%

Access to credit

13%

13%

16%

17%

Inflation concerns

8%

10%

11%

14%

Energy costs

3%

4%

6%

8%

Congress: “Kicking the can down the road.”

The business community is not counting on Congress to help improve business conditions. Are you more optimistic about business conditions since Congress agreed to a budget for fiscal years 2014-2015? Just 33 percent of the survey respondents are cautiously optimistic and half of them are simply neutral. According to one survey participant, “The acrimony between the administration and Senate Democrats and House Republicans prevents anything positive from getting done to solve problems and stimulate economic conditions, improve business conditions and increase employment.” There is slightly more positive thinking concerning the looming debt ceiling deadline on Feb. 7, 2014—47 percent are cautiously optimistic that Congress will agree to increase the debt ceiling on time, although 22 percent are pessimistic. As one hopeful respondent noted, “If Congress gets the debt ceiling addressed on time, I believe that business owners will be more likely to invest and grow their companies.”

Significant business issue: Retaining and attracting top talent

On a list of executive-related business issues, the two biggest concerns are attracting and retaining top talent. There is also considerable angst about finding qualified employees. “Business outlook is bleak due to lack of qualified work-force. Current applicant skill levels do not meet industry demand,” wrote one employer. Another said, “The inability to attract and retain technology talent will hurt our pace of growth.”

Other insights

Is your organization likely to increase or decrease its number of employees in 2014?

Not surprisingly, there are no predictions for dramatic increases in employee hiring. Similar to recent years, many employers (41 percent) say they are likely to slightly increase their number of employees and the same percentage (41 percent) anticipate their number of employees will stay about the same.

Is your business planning to invest in capital in 2014?

Moderate is the word for capital investment in 2014. This year, 51 percent expect to make a moderate investment in capital, compared to 40 percent last year.

In 2014, are your plans to dedicate more resources to international growth or more to domestic growth?

Once again, the majority of respondents—55 percent—will dedicate more resources to domestic growth in 2014.

Modest optimism

The Business Outlook Survey results do include some optimistic viewpoints. Last year, 49 percent of the participants expected business conditions in their organizations to have modest improvements. This year, 58 percent expect modest improvements. Although the majority of written comments voiced uncertainty and frustration, there were also glimmers of confidence:

“Business recovers in spite of the regulators.”

“I am somewhat optimistic for 2014 and think the economy will have a good year.”

“Tough times make the survivors more efficient.”

“We see the economy continuing to slowly improve throughout the year, building on what we saw in 2013.”

The 12-question Business Outlook Survey was conducted with clients and friends of the firm from Jan. 6 to Jan. 28, 2014.